Getting inflation back to target in America might require a recession

Author: Tejretics

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@Greyparrot
I have to disagree with your opinion that employment rates are more impactful than inflation rates.

Employment rates are extremely misleading as they do not show the actual value of time/money. I think I read somewhere that many authoritarian centrally planned regimes like the old soviet union boasted very low unemployment, but it meant very little value for the average person.

Inflation on the other hand DOES have a concrete value and it's a measurable value directly impacting every person affected.
I’ve got a couple thoughts:

  • Right now, combating inflation is, in fact, more important. I support aggressive Fed rate hikes, as well as deficit reduction, in efforts to get inflation down. 
  • I agree that purely giving people jobs isn’t enough, and improving productivity through long-run economic growth is incredibly important. The US should significantly increase its population, admit 3x more immigrants, make major investments in clean energy R&D, continue to allow fracking, increase R&D spending more generally, and deregulate building housing to increase this productivity. 
  • That said, full employment -- in an economy that’s already producing a lot like the US -- does give you a lot of things, including higher satisfaction, reduced poverty, better labor protections by employers when workers have more bargaining power, and less crime. The evidence on this is pretty clear and convincing, and, in my view, often worth the risk of a bit of inflation (though not right now, when inflation is so high and unemployment so low). 

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Right now, combating inflation is, in fact, more important. I support aggressive Fed rate hikes, as well as deficit reduction, in efforts to get inflation down. 

This is the academic solution. The problem is, practically speaking, that in most democracies reducing the deficit means raising taxes instead of cutting government expenditures, which makes the production and job problems worse. Austerity measures are the exception, not the rule.

While market corrections on the economy are painful, government corrections to economy imbalances are far worse.